FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-14194
VMS NATIONAL PROPERTIES JOINT VENTURE
(Exact name of registrant as specified in its charter)
Illinois 36-3311347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois Limited Partnerships)
VMS NATIONAL PROPERTIES (an Illinois Partnership) AND SUBPARTNERSHIPS
COMBINED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (Note)
Assets:
<S> <C> <C>
Cash and cash equivalents $ 922 $ 2,004
Receivables and deposits 1,884 1,863
Restricted escrows 3,427 2,581
Other assets 269 311
Investment properties:
Land 13,404 13,404
Buildings and related personal property 136,283 135,080
Less accumulated depreciation (89,822) (86,798)
59,865 61,686
$ 66,367 $ 68,445
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 665 $ 649
Tenant security deposit liabilities 1,061 1,075
Accrued property taxes 564 598
Other liabilities 485 1,726
Accrued interest 1,037 713
Mortgage notes payable, including $29,605 and $30,101
due to an affiliate at June 30, 2000 and
December 31, 1999 respectively (Note D) 136,759 137,811
Notes payable 42,060 41,657
Deferred gain on extinguishment of debt 42,225 42,225
Partners' Deficit (158,489) (158,009)
$ 66,367 $ 68,445
Note: The balance sheet at December 31, 1999, has been derived from the audited
financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See Accompanying Notes to Combined Financial Statements
</TABLE>
b)
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois Limited Partnerships)
VMS NATIONAL PROPERTIES (an Illinois Partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues:
<S> <C> <C> <C> <C>
Rental income $ 7,287 $ 6,815 $14,469 $13,599
Other income 389 304 668 576
Total revenues 7,676 7,119 15,137 14,175
Expenses:
Operating 2,409 2,303 4,716 4,583
General and administrative 155 187 299 352
Depreciation 1,521 1,409 3,024 2,857
Interest 3,156 4,143 6,706 8,354
Property taxes 423 442 877 905
Total expenses 7,664 8,484 15,622 17,051
Net income (loss) $ 12 $(1,365) $ (485) $(2,876)
Net loss allocated to
general partners (2%) $ -- $ (28) $ (10) $ (58)
Net income (loss) allocated to
limited partners (98%) 12 (1,337) (475) (2,818)
$ 12 $(1,365) $ (485) $(2,876)
Net income (loss) per limited partnership interest:
Portfolio I (644 interests
issued and outstanding) $ 13 $(1,469) $ (522) $(3,094)
Portfolio II (267 interests
issued and outstanding) $ 15 $(1,469) $ (521) $(3,095)
See Accompanying Notes to Combined Financial Statements
</TABLE>
c)
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois Limited Partnerships)
VMS NATIONAL PROPERTIES (an Illinois Partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
VMS National Residential Portfolio I
Limited Partners
<TABLE>
<CAPTION>
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
<S> <C> <C> <C> <C> <C>
December 31, 1999 $(3,535) $(107,157) $ (506) $(107,663) $(111,198)
Collections of
subscription notes -- -- 4 4 4
Net loss for the
six months ended
June 30, 2000 (7) (336) -- (336) (343)
Partners' deficit at
June 30, 2000 $(3,542) $(107,493) $ (502) $(107,995) $(111,537)
</TABLE>
VMS National Residential Portfolio II
Limited Partners
<TABLE>
<CAPTION>
General Accumulated Subscription
Partners Deficit Notes Total Total
Partners' deficit at
<S> <C> <C> <C> <C> <C>
December 31, 1999 $(1,480) $ (45,002) $ (329) $ (45,331) $ (46,811)
Collections of
subscription notes -- -- 1 1 1
Net loss for the
six months ended
June 30, 2000 (3) (139) -- (139) (142)
Partners' deficit at
June 30, 2000 $(1,483) $ (45,141) $ (328) $ (45,469) $ (46,952)
Combined total $(5,025) $(152,634) $ (830) $(153,464) $(158,489)
See Accompanying Notes to Combined Financial Statements
</TABLE>
d)
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois Limited Partnerships)
VMS NATIONAL PROPERTIES (an Illinois Partnership) AND SUBPARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (485) $(2,876)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 3,024 2,857
Amortization of discounts 403 2,157
Change in accounts:
Receivables and deposits (21) 410
Other assets 42 48
Accounts payable 16 128
Tenant security deposit liabilities (14) (46)
Accrued property taxes (34) (486)
Accrued interest 1,262 160
Other liabilities (1,241) 94
Net cash provided by operating activities 2,952 2,446
Cash flows from investing activities:
Property improvements and replacements (1,203) (762)
Net deposits to restricted escrows (846) (248)
Net cash used in investing activities (2,049) (1,010)
Cash flows from financing activities:
Payments on mortgage notes payable (1,990) (1,368)
Payments received on subscription notes 5 --
Net cash used in financing activities (1,985) (1,368)
Net (decrease) increase in cash and cash equivalents (1,082) 68
Cash and cash equivalents at beginning of period 2,004 931
Cash and cash equivalents at end of period $ 922 $ 999
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,039 $ 6,036
Supplemental disclosure of non-cash activity:
Accrued interest added to mortgage notes payable $ 938 $ 328
See Accompanying Notes to Combined Financial Statements
</TABLE>
e)
VMS NATIONAL RESIDENTIAL PORTFOLIO I
VMS NATIONAL RESIDENTIAL PORTFOLIO II
(Illinois Limited Partnerships)
VMS NATIONAL PROPERTIES (an Illinois Partnership) AND SUBPARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited combined financial statements of VMS National
Properties Joint Venture (the "Venture" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of MAERIL, Inc. ("MAERIL" or the "Managing General
Partner"), all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and six months ended June 30, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. For further
information, refer to the combined financial statements and footnotes thereto
included in the Venture's Annual Report on Form 10-K for the year ended December
31, 1999.
Basis of Accounting:
The accompanying combined financial statements include the accounts of VMS
National Residential Portfolio I ("Portfolio I"), VMS National Residential
Portfolio II ("Portfolio II"), the Venture and subpartnerships
("Subpartnerships"). Significant interpartnership accounts and transactions have
been eliminated from these combined financial statements.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998, and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Managing General Partner. The Managing General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Venture.
Note C - Petition For Relief Under Chapter 11 and Plan of Reorganization
On February 22, 1991, the Venture filed for Chapter 11 bankruptcy protection in
the United States Bankruptcy Court in the Central District of California. The
initial filing included only the residential apartment complexes directly owned
by the Venture (entities included in the filing are herein after referred to
collectively as the "Debtor") and excluded the 10 Subpartnerships consisting of
10 residential apartment complexes encumbered by financing insured or held by
the Department of Housing and Urban Development ("HUD"), and the investing
limited partnerships Portfolio I and Portfolio II. Due to the partnership
agreements existing between the Venture, Portfolio I and Portfolio II, which
provide the Venture with exclusive rights to the limited partner investor
contributions, the Venture's initial filing was amended to reflect the Venture's
right to receive any excess limited partner investor contributions.
The Venture's Plan was confirmed by the Bankruptcy Court in March 1993 and
became effective on March 31, 1993 (the "Effective Date"). During 1997, the Plan
was modified in order to allow the Venture to refinance the debt encumbering its
properties. The bankruptcy plan was closed by the Bankruptcy Court on April 29,
1998.
The Primary aspects of the Venture's Plan of Reorganization included the
following:
(a) The Venture retained 17 properties from the existing portfolio (the
"retained properties"), and abandoned title of the remaining properties (the
"non-retained properties") to the Federal Deposit Insurance Corporation (the
"FDIC"). The retained properties consisted of one HUD property and sixteen
non-HUD properties. Two of the seventeen retained properties were sold during
the second quarter of 1996. All of the non-retained properties were foreclosed
upon as of December 31, 1996.
(b) The Venture restructured the existing senior-lien debt obligations on the
retained properties (except for one of the retained properties which had a first
mortgage lien insured by HUD and two of the retained properties which had senior
liens formerly payable to the FDIC, as successor to Beverly Hills Mortgage
Corporation ("BH")) to provide for an interest rate of 8.75% per annum effective
as of the first day of the month of the Effective Date with payments based on a
30 year amortization commencing on the first monthly payment due thereafter with
a maturity of January 15, 2000.
The senior lien collateralized by HUD on one of the retained properties was not
modified, and the senior liens formerly held by the FDIC were modified to accrue
at 9% per annum effective as of the first day of the month of the Effective Date
with monthly payments of interest only made at 7% per annum commencing with the
first monthly payments due thereafter on the FDIC value, as defined in "c"
below.
All of the senior-lien debt (the "Senior Debt") was refinanced on December 29,
1997.
(c) As it pertained to the existing BH junior mortgages on the retained
properties, the FDIC reduced its claim on two of the properties to $300,000 per
property evidenced by a non-interest bearing note scheduled to mature January
15, 2000, and left in place liens for the full amount of its claims at the
petition date for all other retained properties. Interest on the former FDIC
loans for these retained properties accrued at 10% per annum on the FDIC value
(total property value per the FDIC's June 1992 valuations less the property's
senior lien indebtedness) commencing as of the first day of the month of the
Effective Date and monthly payments of interest only at 7% per annum on the FDIC
value will commence with the first monthly payment due thereafter. (The retained
property governed by a HUD Regulatory Agreement made payments of interest only
following the approval by HUD of the Surplus Cash calculation.) On October 28,
1995, the FDIC sold all of the debt it held related to the retained properties
to BlackRock Capital Finance, L.P. The debt amounts and terms were not modified.
On December 29, 1997, all of the junior mortgages (the "Junior Debt") were
refinanced.
(d) The Venture distributed the following amounts in conjunction with the terms
of the Plan: (1) approximately $5,980,000 to satisfy unsecured prepetition
creditor claims of the nonaffiliated note payable to Security Pacific National
Bank, trade creditors, and property taxes on the retained properties; (2)
approximately $1,056,000 to provide for allowed and unclassified administrative
claims; and (3) approximately $5,960,000 to make capital improvements at the
retained properties. This capital improvement reserve was exhausted during 1995.
(e) The VMS/Stout Joint Venture (the "VMS/Stout Venture") was formed pursuant to
an agreement dated August 18, 1984, which was amended and restated on October 4,
1984. VMS Realty Partners has a 50% interest and affiliates of the Seller (as
defined below) have a 50% interest in the VMS/Stout Venture. The VMS/Stout
Venture, the J.D. Stout Company ("Stout") and certain affiliates of Stout
entered into a contract of sale dated August 18, 1984, which was amended on
October 4, 1984. The contract provided for the sale by Stout and other owners
(collectively the "Seller") of the 51 residential apartment complexes to the
VMS/Stout Venture. The VMS/Stout Venture assigned its interest as purchaser to
the Venture. During 1987, Stout assigned its interest in the VMS/Stout Joint
Venture to ContiTrade Service Corporation ("ContiTrade"). On November 17, 1993,
VMS Realty Partners assigned its interest in the VMS/Stout Joint Venture to the
Partners Liquidating Trust. The VMS/Stout Joint Venture was granted an allowed
claim in the amount of $49,535,000 for the Assignment and Long-Term Loan
Arrangement Notes payable to them by the Venture. Payments totaling $3,475,000
in conjunction with this allowed claim were made to the nonaffiliated members of
the VMS/Stout Joint Venture on October 7, 1993. The Venture also executed a
$4,000,000 promissory note dated September 1, 1993, to ContiTrade Service
Corporation (the "ContiTrade Note") in connection with these allowed note
claims. The ContiTrade Note represents a prioritization of payments to
ContiTrade of the first $4,000,000 in repayments made under the existing
Assignment and Long-Term Arrangement Notes payable to the VMS/Stout Joint
Venture, and does not represent an additional $4,000,000 claim payable to
ContiTrade. In addition to prioritizing ContiTrade's receipt of the first
$4,000,000 of repayments on the old notes, the ContiTrade Note provides for 5%
non-compounding interest on the outstanding principal balance calculated daily
on the basis of a 360 day year. The ContiTrade Note was secured by a Deed of
Trust, Assignment of Rents and Security Agreement on each of the Venture's
retained properties, and provided ContiTrade with other approval rights as to
the ongoing operations of the Venture's retained properties. The ContiTrade
Note, which was scheduled to mature January 15, 2000, was paid off on December
29, 1997.
(f) The Venture entered into a Revised Restructured Amended and Restated Asset
Management Agreement (the "Revised Asset Management Agreement") with Insignia.
Effective October 1, 1993, Insignia took over the asset management of the
Venture's retained properties and partnership functions for the Venture. The
Revised Asset Management Agreement provided for an annual compensation of
$500,000 to be paid to Insignia in equal monthly installments. In addition,
Insignia received reimbursement for all accountable expense incurred in
connection with their services up to $200,000 per calendar year. These amounts
are to be paid from the available operating cash flow of the Venture's retained
complexes after the payment of operating expenses and priority reserve funding
for insurance, real estate and personal property taxes and senior and junior
mortgage payments. If insufficient operating cash flow exists after the funding
of these items, the balance of asset management fees and reimbursements may be
paid from available partnership cash sources. Additionally, the asset management
fee payable will be reduced proportionately for each of the Venture's retained
complexes which are sold or otherwise disposed of from time to time.
Accordingly, the fee was reduced upon the disposition of Bellevue and Carlisle
Square in 1996. Effective January 1, 1998, in relation to the refinancing of the
Senior Debt on December 29, 1997 (see "Note D"), the Venture and Managing
General Partner agreed to amend the Asset Management Agreement to reduce the
annual asset management fee payable to $300,000 per year and to reduce the
annual reimbursement for accountable expenses to $100,000.
Note D - Transactions with Affiliated Parties
The Venture has no employees and is dependent on the Managing General Partner
and its affiliates for the management and administration of all Subpartnership
activities. The Revised Asset Management Agreement, which was executed in
conjunction with the Venture's Plan, provided for (i) certain payments to
affiliates for real estate advisory services and asset management of the
Venture's retained properties for an annual compensation of $500,000 and (ii)
reimbursement of certain expenses incurred by affiliates on behalf of the
Venture up to $200,000 per annum.
Effective January 1, 1998, in relation to the refinancing of the Senior Debt on
December 29, 1997, the Venture and Managing General Partner agreed to amend the
Asset Management Agreement to reduce the annual asset management fee payable to
$300,000 per year and to reduce the annual reimbursement for accountable
expenses to $100,000.
Asset management fees of approximately $150,000 and $152,000 were paid to an
affiliate of the Managing General Partner for the six months ended June 30, 2000
and 1999, respectively.
Affiliates of the Managing General Partner are entitled to receive a percentage
of the gross receipts from all of the Registrant's properties as compensation
for providing property management services. The Registrant paid to such
affiliates approximately $604,000 and $571,000 for the six months ended June 30,
2000 and 1999, respectively.
In addition, affiliates of the Managing General Partner received reimbursement
of accountable administrative expenses amounting to approximately $50,000 for
both the six months ended June 30, 2000 and 1999. These expenses are included in
general and administrative expenses. Included in investment properties and
operating expenses of the Venture are construction oversight reimbursements,
paid to an affiliate of the Managing General Partner, of approximately $23,000
and $3,000 for the six months ended June 30, 2000 and 1999, respectively.
An affiliate of the Managing General Partner received bookkeeping reimbursements
in the amount of approximately $70,000 and $71,000 for the six months ended June
30, 2000 and 1999, respectively. These expenses are included in operating
expense.
Prepetition property management fees were approved by the Bankruptcy Court for
payment to a former affiliate. This allowed claim may be paid only from
available Venture cash. At June 30, 2000 and 1999, the outstanding balance of
approximately $79,000 is included in other liabilities.
Certain affiliates of the former general partners and the VMS/Stout Venture may
be entitled to receive various fees upon disposition of the properties. These
fees will be paid from the disposition proceeds and are subordinated to the
distributions required by the Plan. There were no property dispositions for
which proceeds were received during the six months ended June 30, 2000 and 1999.
AIMCO Properties, LP ("AIMCO LP"), which owns the Managing General Partner and
which is a controlled affiliate of AIMCO, purchased (i) the junior loans on
November 19, 1999, and (ii) a significant interest in the residual value of the
properties on November 16, 1999.
AIMCO and its affiliates currently own 21.75 units of limited partnership
interest in Portfolio I representing 3.377% of the outstanding units and 19.50
units of limited partnership interest in Portfolio II representing 7.303% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnerships for cash or in exchange for units in the operating partnership
of AIMCO. Under the Partnership Agreements, unitholders holding a majority of
the Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the Managing General Partner because of
their affiliation with the Managing General Partner.
Note E - Mortgage Notes Refinanced
On December 29, 1997, the Venture refinanced the mortgages encumbering all of
its 15 properties. The refinancing resulted in each property being encumbered by
new Senior and Junior Debt. The Senior Debt each have an interest rate of 8.5%
per annum and require monthly payments of principal and interest based on a 25
year amortization period. Balloon payments of approximately $91,352,000 will be
due at maturity (January 1, 2008). The Junior Debt each has an interest rate of
10.84% per annum and requires monthly payments based on excess monthly cash
flow, as defined, for each property. The difference between the accrued amount
of the stated rate and the actual payment is transferred to the outstanding
principal. All of the debt matures on January 1, 2008, and the Senior Debt
includes prepayment penalties if paid prior to January 1, 2007. The Senior Debt
retained similar terms for the previous indebtedness regarding note face amounts
and agreed valuation amounts. Upon refinancing, the Senior Debt was recorded at
the agreed valuation amount of $110,000,000, which was less than the
$152,225,000 face amount of the Senior Debt. If the Venture defaults on the
mortgage notes payable or is unable to pay the outstanding agreed valuation
amounts upon maturity, then the note face amounts become due. Accordingly, the
Venture deferred recognition of a gain of $42,225,000, which is the difference
between the refinanced note face amounts and the agreed valuation amounts. All
the debt is cross-collateralized, but it is not cross-defaulted. As of June 30,
2000, the outstanding balance of the Senior and Junior Debt was approximately
$107,154,000 and $29,605,000, respectively.
Note F - Notes Payable
Assignment Note:
The Venture executed a $29,000,000 purchase money subordinated note (the
"Assignment Note") payable to the VMS/Stout Venture in exchange for the
assignment by the VMS/Stout Venture of its interest in the contract of sale to
the Venture. The Assignment Note is collateralized by the pledge from Portfolio
I and Portfolio II of their respective interests in the Venture.
On November 17, 1993, VMS Realty Partners assigned its 50% interest in the
VMS/Stout Venture to the Partners Liquidating Trust which was established for
the benefit of the former creditors of VMS Realty Partners and its affiliates.
The stated rate of interest on the Assignment Note (prior to modification by the
Plan) was 12% per annum (compounded semi-annually) with monthly payments of
interest only at a rate of 6%. Monthly payments on this note were discontinued
in May 1990, and the accrual of interest was discontinued after the February 22,
1991 petition filing date. Additionally, effective April 10, 1991, VMS Realty
Partners waived its right to collect interest on its portion of the Assignment
Note.
Pursuant to the Plan, the allowed claim for the Assignment Note and related
interest was $46,285,000; $3,475,000 of this amount was paid in October 1993, in
accordance with the terms of the Plan. The Venture also executed a $4,000,000
promissory note payable dated September 1, 1993 to ContiTrade Services
Corporation ("ContiTrade Note") with interest at 5% per annum. This note
represented a prioritization of payment to ContiTrade and did not represent the
assumption of any additional debt. The ContiTrade Note was to mature on January
15, 2000, and was collateralized by a Deed of Trust, Assignment of Rents and
Security Agreement on each of the Venture's retained complexes. This note was
paid with the December 29, 1997, refinancing (see "Note C").
The remaining $38,810,000 of the Assignment Note is non-interest bearing and is
payable only after payment of debt of higher priority, including the Senior and
Junior Debt. Pursuant to SOP 90-7, the Assignment Note, the Long-Term Loan
Arrangement Fee Note (as defined below) and related accrued interest were
adjusted to the present value of amounts to be paid using an estimated current
interest rate of 11.5%. At June 30, 2000, the carrying amount of the Assignment
Note is $38,810,000. Interest expense is being recognized through the
amortization of the discount over the estimated term of the note which totaled
approximately $403,000 and $2,157,000 for the six months ended June 30, 2000 and
1999, respectively.
Long-Term Loan Arrangement Fee Note:
The Venture executed a $3,000,000 unsecured, nonrecourse promissory note, the
"Long-Term Loan Arrangement Fee Note" payable to the VMS/Stout Venture as
consideration for arranging long-term financing.
The stated rate of interest on this note prior to modification by the Plan was
10% per annum, payable on a monthly basis. Monthly interest payments on this
Note were discontinued in May 1990. Additionally, the accrual of interest on
this Note was discontinued after the February 22, 1991 petition filing date.
Pursuant to the Plan, the entire $3,250,000 balance, which included $250,000 in
unpaid accrued interest that was rolled into principal, was granted as an
allowed claim. None of this balance bears interest, and the balance is payable
only after debt of a higher priority, including Senior and Junior Debt.
Note G - Segment Reporting
Description of the types of products and services from which reportable segment
derives its revenues:
The Venture has one reportable segment: residential properties. The Venture's
residential property segment consists of fifteen apartment complexes located in
California (6 properties), Oregon (1 property), Texas (1 property), Indiana (2
properties), Louisiana (1 property), Maryland (1 property), Nebraska (1
property), Arkansas (1 property), and Arizona (1 property). The Venture rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Venture evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies in the
Venture's Annual Report on Form 10-K for the year ended December 31, 1999.
Factor's management used to identify the enterprise's reportable segment:
The Venture's reportable segment consists of investment properties that offer
similar products and services. Although each of the investment properties is
managed separately, they have been aggregated into one segment as they provide
services with similar types of products and customers.
Segment information for the three and six months ended June 30, 2000 and 1999,
is shown in the tables below (in thousands). The "Other" column includes Venture
administration related items and income and expense not allocated to the
reportable segment.
Three Months Ended June 30, 2000 Residential Other Totals
Rental income $ 7,287 $ -- $ 7,287
Other income 382 7 389
Interest expense 3,156 -- 3,156
Depreciation 1,521 -- 1,521
General and administrative expense -- 155 155
Segment profit (loss) 160 (148) 12
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 Residential Other Totals
<S> <C> <C> <C>
Rental income $14,469 $ -- $14,469
Other income 657 11 668
Interest expense 6,303 403 6,706
Depreciation 3,024 -- 3,024
General and administrative expense -- 299 299
Segment profit (loss) 206 (691) (485)
Total assets 65,842 525 66,367
Capital expenditures for investment
properties 1,203 -- 1,203
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 6,815 $ -- $ 6,815
Other income 300 4 304
Interest expense 3,065 1,078 4,143
Depreciation 1,409 -- 1,409
General and administrative expense -- 187 187
Segment loss (104) (1,261) (1,365)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 Residential Other Totals
<S> <C> <C> <C>
Rental income $13,599 $ -- $13,599
Other income 567 9 576
Interest expense 6,197 2,157 8,354
Depreciation 2,857 -- 2,857
General and administrative expense -- 352 352
Segment loss (376) (2,500) (2,876)
Total assets 68,969 731 69,700
Capital expenditures for investment
properties 762 -- 762
</TABLE>
Note H - Legal Proceedings
The Venture is not aware of any pending or outstanding litigation that is not of
a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
Average occupancy rates for the six months ended June 30, 2000 and 1999, for all
of the Venture's properties are as follows:
Average Occupancy
Property 2000 1999
North Park Apartments
Evansville, IN 91% 95%
Chapelle Le Grande
Merrillville, IN 95% 92%
Terrace Gardens
Omaha, NE 94% 97%
Forest Ridge Apartments
Flagstaff, AZ 96% 92%
Scotchollow
San Mateo, CA 99% 91%
Pathfinder
Fremont, CA 98% 90%
Buena Vista Apartments
Pasadena, CA 97% 100%
Mountain View Apartments
San Dimas, CA 97% 99%
Crosswood Park
Citrus Heights, CA 95% 95%
Casa de Monterey
Norwalk, CA 98% 98%
The Bluffs
Milwaukie, OR 94% 95%
Watergate Apartments
Little Rock, AR 91% 93%
Shadowood Apartments
Monroe, LA 93% 96%
Vista Village Apartments
El Paso, TX 90% 94%
The Towers of Westchester Park
College Park, MD 97% 99%
The Managing General Partner attributes the occupancy fluctuations at the
properties to the following: a decrease at North Park Apartments to a poor
market conditions in the North Evansville, IN area; an increase at Chapelle Le
Grande due to improved resident services and customer service; a decrease at
Terrace Gardens due to tenants purchasing homes; an increase at Forest Ridge
Apartments, Scotchollow and Pathfinder due to more aggressive marketing; a
decrease at Buena Vista Apartments due to an increase in rental rates which more
than offset the decrease in occupancy in regards to the property's total rent
collected; a decrease at Shadowood Apartments due to a decrease in corporate
unit rental and a slow market in the Monroe, LA area and a decrease at Vista
Village Apartments due to tenants purchasing homes and breaking leases prior to
their expiration.
Results of Operations
The Venture recorded a net loss for the six months ended June 30, 2000 of
approximately $485,000 as compared to a net loss of approximately $2,876,000 for
the corresponding period in 1999. For the three months ended June 30, 2000, the
Venture recorded net income of approximately $12,000 as compared to a net loss
of approximately $1,365,000 for the three months ended June 30, 1999. The
decrease in net loss is primarily attributable to an increase in total revenues
and a decrease in total expenses. The increase in total revenues is due to an
increase in both rental and other income. Rental income increased mainly due to
an increase in average annual rental rates at thirteen of the Venture's
investment properties which more than offset the decrease in occupancy at nine
of the properties. Other income increased primarily due to increases in interest
income and tenant auxiliary services.
Total expenses decreased primarily due to a reduction in interest expense which
more than offset the increase in operating and depreciation expenses. Interest
expense decreased due to a reduction in the amortization of the imputed interest
on the Venture's Assignment Note. This discount for imputed interest became
fully amortized during January 2000 which was the estimated maturity date of the
Assignment Note. Operating expenses increased due to an increase in property
expenses. The increase in property expense is primarily a result of an increase
in salary and related benefits at Scotchollow. Depreciation expense increased as
the result of depreciation taken on property improvements and replacements
placed into service during the previous twelve months.
Included in general and administrative expenses for the six months ended June
30, 2000 and 1999 are reimbursements to the Managing General Partner allowed
under the Partnership Agreement associated with its management of the Venture.
Costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit required by the Partnership Agreement
are also included.
As part of the ongoing business plan of the Venture, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Venture from increases in
expenses. As part of this plan, the Managing General Partner attempts to protect
the Venture from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2000, the Venture had cash and cash equivalents of approximately
$922,000 as compared to approximately $999,000 at June 30, 1999. Cash and cash
equivalents decreased approximately $1,082,000 for the six months ended June 30,
2000, from the Venture's fiscal year end. The decrease in cash and cash
equivalents is the result of approximately $2,049,000 of cash used in investing
activities and approximately $1,985,000 of cash used in financing activities
which is partially offset by approximately $2,952,000 of cash provided by
operating activities. Cash used in investing activities consisted of property
improvements and replacements and net deposits to escrow accounts maintained by
the mortgage lender. Cash used in financing activities consisted of payments of
principal made on the mortgages encumbering the Registrant's properties and was
slightly offset by payments received on subscription notes. The Venture invests
its working capital reserves in a money market account.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Venture and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Venture's properties are detailed below.
The Venture had budgeted a minimum of $300 per unit for all of the properties,
which is the limit set by the second mortgage notes for funding of capital
improvements. The Venture, the holder of the junior loan encumbering the
properties (AIMCO LP) and the servicer of the senior loan encumbering the
properties have agreed to a procedure to assess whether or not capital
expenditures, in addition to those permitted, are needed at the properties and
the methodology for funding any such capital expenditures, in each case. On
November 19, 1999, an agreement was signed relating to Towers of Westchester
Park. On July 10, 2000, agreements were signed relating to North Park
Apartments, Scotchollow, Pathfinder, Buena Vista Apartments, Mountain View
Apartments, Casa de Monterey and The Bluffs. The Venture anticipates that
agreements will be signed for all the remaining properties during the remainder
of 2000.
North Park Apartments: The methodology discussed above for funding additional
capital expenditures has been applied to North Park Apartments. The parties
agreed that this property required repairs over the next six months that are
estimated to cost approximately $150,000 and that these repairs would be funded
out of cash flows from the properties that otherwise would be utilized to pay
debt service on the junior loans. The Venture has budgeted approximately
$235,000 for capital improvements during 2000 at North Park Apartments
consisting primarily of appliance replacements and structural improvements. The
Venture completed approximately $35,000 in capital expenditures at North Park
Apartments as of June 30, 2000, consisting primarily of appliance and flooring
replacements and swimming pool upgrades. These improvements were funded from
operating cash flow and replacement reserves.
Chapelle Le Grande: The Venture budgeted approximately $32,000 for capital
improvements at Chapelle Le Grande consisting primarily of appliance, air
conditioning and flooring replacements. As of June 30, 2000 the Venture has
spent approximately $24,000 on capital expenditures, consisting primarily of
appliance and flooring replacements, lighting and roof replacements. These
improvements were funded from replacement reserves. Additional improvements may
be considered and will depend on the physical condition of the property as well
as replacement reserves and anticipated cash flow generated by the property.
Terrace Gardens: The Venture budgeted approximately $38,000 for capital
improvements at Terrace Gardens consisting primarily of plumbing improvements.
As of June 30, 2000 the Venture has spent approximately $31,000 in capital
expenditures, consisting primarily of appliance, air conditioning, water heater,
and flooring replacements and other building improvements. These improvements
were funded from operating cash flow. Additional improvements may be considered
and will depend on the physical condition of the property as well as replacement
reserves and anticipated cash flow generated by the property.
Forest Ridge Apartments: The Venture budgeted approximately $83,000 for capital
improvements at Forest Ridge Apartments consisting primarily of appliance,
fencing, lighting, and flooring replacements and structural improvements. As of
June 30, 2000, the Venture has spent approximately $57,000 on capital
expenditures, consisting primarily of appliance, water heater, lighting and
flooring replacements. These improvements were funded from operating cash flow
and replacement reserves. Additional improvements may be considered and will
depend on the physical condition of the property as well as replacement reserves
and anticipated cash flow generated by the property.
Scotchollow: The methodology discussed above for funding additional capital
expenditures has been applied to Scotchollow. The parties agreed that this
property required repairs over the next six months that are estimated to cost
approximately $439,000 and that these repairs would be funded out of cash flows
from the properties that otherwise would be utilized to pay debt service on the
junior loans. The Venture has budgeted approximately $564,000 for capital
improvements during 2000 at Scotchollow consisting primarily of appliance and
flooring replacements and structural improvements. The Venture completed
approximately $50,000 in capital expenditures at Scotchollow as of June 30,
2000, consisting primarily of appliance and flooring replacements and building
and structural improvements. These improvements were funded from operating cash
flow.
Pathfinders Village: The methodology discussed above for funding additional
capital expenditures has been applied to Pathfinders Village. The parties agreed
that this property required repairs over the next six months that are estimated
to cost approximately $1,037,000 and that these repairs would be funded out of
cash flows from the properties that otherwise would be utilized to pay debt
service on the junior loans. The Venture has budgeted approximately $1,111,000
for capital improvements during 2000 at Pathfinders Village consisting primarily
of appliance and flooring replacements and building and structural improvements.
The Venture completed approximately $225,000 in capital expenditures at
Pathfinders Village as of June 30, 2000, consisting primarily of appliance,
window coverings, cabinet, countertop, sewer and flooring replacements, air
conditioning and heating system upgrades, clubhouse renovations, building and
structural improvements. These improvements were funded from operating cash
flow.
Buena Vista Apartments: The methodology discussed above for funding additional
capital expenditures has been applied to Buena Vista Apartments. The parties
agreed that this property required repairs over the next six months that are
estimated to cost approximately $110,000 and that these repairs would be funded
out of cash flows from the properties that otherwise would be utilized to pay
debt service on the junior loans. The Venture has budgeted approximately
$138,000 for capital improvements during 2000 at Buena Vista Apartments
consisting primarily of lighting replacements and building and structural
improvements. The Venture completed approximately $33,000 in capital
expenditures at Buena Vista Apartments as of June 30, 2000, consisting primarily
of appliance, and flooring replacements. These improvements were funded from
replacement reserves.
Mountain View Apartments: The methodology discussed above for funding additional
capital expenditures has been applied to Mountain View Apartments. The parties
agreed that this property required repairs over the next six months that are
estimated to cost approximately $134,000 and that these repairs would be funded
out of cash flows from the properties that otherwise would be utilized to pay
debt service on the junior loans. The Venture has budgeted approximately
$184,000 for capital improvements during 2000 at Mountain View Apartments
consisting primarily of appliance replacements and building and structural
improvements. The Venture completed approximately $64,000 in capital
expenditures at Mountain View Apartments as of June 30, 2000, consisting
primarily of appliance, furniture, lighting and flooring replacements, parking
lot and structural improvements. These improvements were funded from replacement
reserves.
Crosswood Park: The Venture budgeted approximately $54,000 for capital
improvements at Crosswood Park consisting primarily of appliance replacements
and various enhancements. As of June 30, 2000 the Venture has spent
approximately $64,000 in budgeted and unbudgeted capital expenditures,
consisting primarily of appliances, plumbing and flooring replacements and
building improvements. These improvements were funded from cash flow. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Casa de Monterey: The methodology discussed above for funding additional capital
expenditures has been applied to Casa de Monterey. The parties agreed that this
property required repairs over the next six months that are estimated to cost
approximately $227,000 and that these repairs would be funded out of cash flows
from the properties that otherwise would be utilized to pay debt service on the
junior loans. The Venture has budgeted approximately $270,000 for capital
improvements during 2000 at Casa de Monterey consisting primarily of building
and structural improvements. The Venture completed approximately $68,000 in
capital expenditures at Casa de Monterey as of June 30, 2000, consisting
primarily of appliance, cabinet, countertop, lighting and flooring replacements.
These improvements were funded from operating cash flow and replacement
reserves.
The Bluffs: The methodology discussed above for funding additional capital
expenditures has been applied to The Bluffs. The parties agreed that this
property required repairs over the next six months that are estimated to cost
approximately $52,000 and that these repairs would be funded out of cash flows
from the properties that otherwise would be utilized to pay debt service on the
junior loans. The Venture has budgeted approximately $93,000 for capital
improvements during 2000 at The Bluffs consisting primarily of plumbing,
appliance and flooring replacements, building and structural improvements. The
Venture completed approximately $21,000 in capital expenditures at The Bluffs as
of June 30, 2000, consisting primarily of appliance, plumbing and flooring
replacements. These improvements were funded from replacement reserves.
Watergate Apartments: The Venture budgeted approximately $42,000 for capital
improvements at Watergate Apartments consisting primarily of appliance, air
conditioners, plumbing fixtures, water heaters and flooring replacements and
structural improvements. As of June 30, 2000 the Venture has spent approximately
$24,000 in capital expenditures, consisting primarily of appliance, heating
system, electrical, plumbing and flooring replacements. These improvements were
funded from operating cash flow and replacement reserves. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Shadowood Apartments: The Venture budgeted approximately $36,000 for capital
improvements at Shadowood Apartments consisting primarily of appliance, plumbing
fixtures, water heaters, air conditioners and flooring replacements. As of June
30, 2000 the Venture has spent approximately $18,000 in capital expenditures,
consisting primarily of appliance, water heater, heating system and flooring
replacements. These improvements were funded from operating cash flow.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
Vista Village Apartments: The Venture budgeted approximately $66,000 for capital
improvements at Vista Village Apartments consisting primarily of lighting
replacements. As of June 30, 2000 the Venture has spent approximately $62,000 in
capital expenditures, consisting primarily of appliances, air conditioning and
flooring replacements and recreational facility enhancements. These improvements
were funded from operating cash flow. Additional improvements may be considered
and will depend on the physical condition of the property as well as replacement
reserves and anticipated cash flow generated by the property.
Towers of Westchester Park: The methodology discussed above for funding
additional capital expenditures has been applied to Towers of Westchester Park.
The parties agreed that this property required repairs during 2000 that are
estimated to cost approximately $920,000 and that these repairs would be funded
out of cash flows from the properties that otherwise would be utilized to pay
debt service on the junior loans. The Venture has budgeted approximately
$1,011,000 for capital improvements during 2000 at Towers of Westchester Park
consisting primarily of appliance, air conditioning, electrical, water heater,
light fixtures, plumbing, cabinet, heating and flooring replacements and
landscaping, pool and structural improvements. The Venture completed
approximately $427,000 in capital expenditures at Towers of Westchester Park as
of June 30, 2000, consisting primarily of cabinet, appliance, heating system,
air conditioning, plumbing and flooring replacements, landscaping and structural
improvements. These improvements were funded from operating cash flow.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The Senior Debt
encumbering all of the properties totals approximately $107,154,000 and is being
amortized over 25 years, with a balloon payment of $91,352,000 due January 2008.
The Junior Debt, which also matures January 2008, totals approximately
$29,605,000 and requires monthly payments based upon monthly excess cash flow
for each property. The Assignment Note and Long-Term Arrangement Fee Notes
totaling approximately $42,060,000 are non-interest bearing and are subordinate
to the Senior and Junior Debt.
AIMCO LP, which owns the Managing General Partner and which is a controlled
affiliate of AIMCO, purchased (i) the Junior Debt on November 19, 1999, and (ii)
a significant interest in the residual value of the properties on November 16,
1999. In connection with AIMCO LP's purchase of the Junior Debt, (i) the seller,
which owned the senior loans on the properties until October 1998, acknowledged
its prior consent to $1,749,286 of capital expenditures made on the properties
in addition to those funded pursuant to the capital expenditure reserves for the
senior and junior loans, which capital expenditures were funded out of cash flow
that would otherwise have been used to pay debt services on the Junior Debt, and
(ii) certain convenience as to the timeliness and completion of certain
scheduled deferred maintenance items were waived. In addition, AIMCO LP, the
Venture, and the servicer of the senior loans encumbering the properties (the
"Servicer") agreed to a procedure to assess whether or not capital expenditures
in addition to permitted capital expenditures of $300 per unit per year are
needed at each property and the methodology for funding any such capital
expenditures. Capital expenditures that are identified pursuant to these
procedures likely will be funded out of cash flow from the properties that
otherwise would be used to service the Junior Debt on the properties; longer
term capital expenditures so identified likely will be funded through an
increase in required capital expenditure reserve funding.
Although the effect of such additional capital expenditures, and the funding
therefore, cannot be determined with precision at this time, the Venture
anticipates that the additional capital expenditures at the properties
identified pursuant to the procedures described above, and the funding therefor,
will significantly increase the period of time that it takes to amortize the
junior loans, may cause the junior loans to negatively amortize for some period
of time, and may result in balloon payments due on the junior loans at the end
of the term. If the properties cannot be refinanced or sold at or before the end
of such term for a sufficient amount, the Venture will risk losing such
properties through foreclosure. There can be no assurance of the effect that
such additional capital expenditures, and the funding therefor, will have on the
operations of the properties, or whether the properties will be maintained in
the future in an acceptable or marketable state of repair.
There were no cash distributions to the partners of either of the
Subpartnerships for the six months ended June 30, 2000 and 1999. In accordance
with the respective Agreements of Limited Partnership, there are no material
restrictions on the Subpartnerships' ability to make cash distributions. Future
cash distributions are, however, subject to the order of distributions as
stipulated by Venture's Plan of Reorganization. The source of future
distributions will depend upon the levels of net cash generated from operations,
the availability of cash reserves, and timing of debt maturities, refinancings
and/or property sales. The Subpartnerships' distribution policies are reviewed
on an annual basis. There can be no assurance, however, that the Subpartnerships
will generate sufficient funds from operations, after required capital
expenditures and the order of distributions as stipulated by the Venture's Plan
of Reorganization, to permit any distributions to partners during the remainder
of 2000 or subsequent periods.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Venture is exposed to market risks from adverse changes in interest rates.
In this regard, changes in U.S. interest rates affect the interest earned on the
Venture's cash and cash equivalents as well as interest paid on its
indebtedness. As a policy, the Venture does not engage in speculative or
leveraged transactions, nor does it hold or issue financial instruments for
trading purposes. The Venture is exposed to changes in interest rates primarily
as a result of its borrowing activities used to maintain liquidity and fund
business operations. To mitigate the impact of fluctuations in U.S. interest
rates, the Venture maintains its debt as fixed rate in nature by borrowing on a
long-term basis. Based on interest rates at June 30, 2000, a 1% increase or
decrease in market interest rate would not have a material impact on the
Venture's Senior or Junior Debt. The Managing General Partner considers
estimation of the fair value for the Assignment and Long-Term Arrangement Fee
Notes Payable to be impracticable as there is currently no market in which the
Venture could obtain similar financing.
The following table summarizes the Venture's Senior and Junior Debt obligations
at June 30, 2000. The interest rates represent the weighted-average rates. The
fair value of the debt obligations approximated the recorded value as of June
30, 2000.
Long-term Debt
Principal Weighted-average
(in thousands) Interest Rate
2000 $ 73 8.50%
2001 1,419 8.50%
2002 1,553 8.50%
2003 1,692 8.50%
2004 1,825 8.50%
Thereafter 130,197 9.04%
$136,759
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VMS NATIONAL PROPERTIES JOINT VENTURE
(Registrant)
VMS National Residential Portfolio I
By: MAERIL, Inc.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
VMS National Residential Portfolio II
By: MAERIL, Inc.
Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date: August 14, 2000
